Market Summary

Earnings Disappoint and the Credit Crisis is not Behind Us

Earnings season began ominously on Monday as Alcoa's earnings fell short of expectations and the week ended with GE's profit falling and a warning that earnings will be lower for the rest of the year. As earnings reports continue to arrive we can expect that on the whole they will be disappointing and the markets will continue to slide. The NASDAQ Composite has now fallen 20% from its November 2 high putting it at borderline bear market levels while the S&P 500 is off 15.5%. The consensus opinion among economists is that we are already in recession and if so, we can expect the markets to go much lower as the S&P 500 typically drops 28% in a recession (Nouriel Roubini).

We wrote last week about market optimism that there was a floor under the market after the Fed had bailed-out Bear Sterns but there is now concern that the size of the credit/liquidity crisis may be too large for the Fed to contain without Government intervention. (remember, the Fed is not officially part of the Government). The IMF warned that losses from private and commercial real estate loans may reach $1 trillion dollars and there were rumors that the Treasury and Fed were discussing plans for the treasury to increase borrowing beyond strictly budgetary requirements and deposit the excess with the Fed. If so, one shudders to think of the effect on the already distressed dollar, the price of imports, especially oil, and inflation. The fact that such an option is being considered is an indication that TPTB (the powers that be) believes the potential for further lending to distressed institutions is very real. To date, writedowns have amounted to 'just' $230 billion, so a potential quadrupling of the writedowns would be seismic.

In this time of severe uncertainty, I hesitate to bring any breakouts to your attention, but I will mention FEED (Agfeed Industries) which broke out on Friday for the second time in the last month. Its technical strength puts it on our 'Buy at Open' list for Monday. We do not recommend that you buy this stock (or any other on our watchlists) but suggest that you may wish to do some due diligence on this one.

If you are interested in shorting the markets, then we have a suggestion for you in this weeks Tip.

No New Features this Week

Short ETF's Can Limit your Risk when Shorting

When you take a long position, the most you can lose is 100% of your investment if the price goes to zero. When shorting a stock, however, your risk is potentially infinite because there is no limit to the potential price move against you. This, among other factors, makes shorting a very risky game.

Investing in a short ETF, however, allows you to bet against the market, while limiting your loss in the same way that going long does. That's because the value of the short ETF can never fall below zero. While 'shorting' the market with these ETF's you are in fact taking a long position. A list of short ETF's we track follows. Note that some of these are very thinly traded.

A complete list of ETF's and their rankings and performance is available in the Industry Analysis area of our site.